RIP the online exchange
Long live the trading grid
Opinion In the heady days of the dotcom boom, online exchanges grew with surprising rapidity, touted as the ultimate platform for more efficiently communicating and trading with business partners. Not many survived.
With public exchanges, the main problems with the model espoused centred around getting suppliers and customers connected to a platform that, in most cases, merely provided a way of exchanging documents electronically. Few exchanges got close to the panacea of being able to analyse trading patterns to improve performance in order to reduce inventory levels, better manage invoices and orders, and streamline logistics.
There have been many casualties among technology vendors offering exchange technology or facilitating online auctions via exchanges, the most recent apparently being Commerce One, which saw revenues drop from $62m in Q2 2000 to just $2m in Q2 2004. And this is just the last in a string of casualties over the years as exchanges have folded as their participants realise that they have failed to live up to the promises.
However, some online exchanges remain, with notable examples being those that have provided value-added services to a like group of participants - an example being Asite, an exchange for the construction industry that enables collaborative project management online. Others, such as Transora, which serves the consumer goods industry, and the Worldwide Retail Exchange appear to have quietly morphed into offering data synchronisation services for members, rather than full exchange services.
So was the model broken? Private trading exchanges fared rather better - mainly because they were, primarily, set up by large companies that wished to form a deeper collaboration with their trading partners, often establishing a VPN connexion to their largest suppliers. And this is a model in which one vendor, GXS, excelled. Long known as a provider of EDI connectivity and value-added networks, GXS, which was formerly a subsidiary of GE, has quietly been building out its services to provide the full range that were once promised in the great exchange gold rush of three or four years ago.
Now, just as others are faltering, GXS has announced its Trading Grid offering - the "grid" in the name pointing to the "on demand" nature of the services offered in the grid computing model. This Trading Grid offers the basic infrastructure required by companies that wish to collaborate with trading partners online, including real-time information flows, centralised repositories, order management and invoice reconciliation for high volume of information flows.
With a long heritage of supporting small and medium businesses, Anthony Payne, group development manager for GXS, explains that around 80 per cent of the company's customers are smaller businesses. Rather than this being a new focus for the vendor, it is rather a renewed effort to cater to their needs. Participation by smaller companies has also been one of the main bottlenecks for companies trying to set up online exchanges, since very few had the means or budget to participate in exchanges - especially since different trading partners were mandating the use of different exchanges, complicating the landscape further.
To encourage participation by smaller companies, which often make up a high percentage of suppliers to large companies, GXS has built out a B2B framework based on web services, enabling faster and easier connexion and solving many of the headaches involved in integrating with exchange frameworks. GXS is pushing these capabilities with the motto "no trading partner left behind" and promises to enable a new level of process integration and business intelligence that other models have failed to deliver.
The idea behind online exchanges was sound but, as with any new technology, hype preceded ability to deliver. Web services technology suffered a similar fate at first, before being incorporated into many technology implementations. Taken together, these technologies mean that the elusive promise of online trading networks comes closer to being reality. And GXS has the pedigree to deliver, since this is merely an extension of a business that it has developed over many years. The little known secret in the world of exchanges was that, while public exchanges were failing to deliver, many companies that developed private exchanges were doing very nicely - they just didn't want the world to know because these trading networks were, by their very nature, private. Now GXS has thrown open the doors to that world and the hype may just turn to reality for a wide range of companies - of all sizes.
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